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Understanding Demand in Microeconomics

Exploring the concept of demand in microeconomics, including demand schedules, curves, and the law of demand. Learn about income and substitution effects, marginal utility, demand determinants, and shifts in demand. Prepare for classwork and homework assignments.

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Understanding Demand in Microeconomics

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  1. Agenda- 3/31 • Set-up Unit 2 in your Notebook • Start Ch. 4 Lecture • HW: Bookwork

  2. Unit 2 –Microeconomics

  3. But first, some Economic Shorthand… Price = P Demand = D Quantity demanded = Qd Income = I Change = Δ • Goods = G • Services = S • Increase = ↑ • Decrease = ↓

  4. Ch. 4 - Demand: Definition of DEMAND: Quantity of goods and services that a consumer is WILLING & ABLE to purchase at various prices

  5. Demand Schedule: • List of quantities that would be purchased at various prices • Plotting & connecting these points, shows the Demand Curve • It shows graphically the relationship between price & quantity demanded

  6. Demand Schedule Quantity Purchased Weekly (Qd) Price $20 $25 $30 $35 21 18 15 12

  7. Demand Curve (Inverse Relationship) Price (P) Demand (D) Quantity (Qd) Law of Demand

  8. Law of Demand The quantity demanded of a good will be higher at lower prices than the quantity demanded at higher prices (simple ; )

  9. Price goes up, Quantity Demanded goes Down Price goes down, Quantity Demanded goes Up (simpler) P ↓ Qd ↑ P ↑ Qd ↓ (simplest ; )

  10. Proof of the Law of Demand: • Income Effect • Substitution Effect • Marginal Utility

  11. Income Effect • Effect increasing or decreasing prices has on purchasing power (less “income”)

  12. Substitution Effect • Change in the combination of goods or services purchased as a result of increasing or decreasing relative prices of possible substitute products.

  13. Homework (left-side) • P. 92 – “Econ Analysis” • p. 93 – Demand & Prices ? • p. 94 – Economic Analysis ? • P. 94 – “Reading Check” • p. 95 –Reading Check • P. 95 - # 1-4

  14. Agenda: 4/3 Continue Demand lecture (slides # 14-18) HW –Demand Packet Don’t forget if you have a Current Event tomorrow Bring a Dry Erase Pen tomorrow!!! Wed. will be Shark Tank work day

  15. Marginal Utility • Amount of satisfaction derived from one additional unit of a product • Law of diminishing marginal utility- as additional units of a product are consumed during a given period of time, the additional satisfaction derived from the good decreases

  16. Law of Diminishing Marginal Utility Graph Utility Click below to play video Units of Goods Diminishing Marginal Utility Pause on “cookie chart” and add MU & TU to shorthand

  17. In Quantity Demanded Caused by an increase or decrease in price Causes a movement ALONG the demand line In Demand Explains why people are willing to buy more or less of a good Causes a shift of the ENTIRE demand line Change in Quantity Demanded (Qd)v.Change in Demand (D)

  18. Homework (hold the applause) • Demand Packet – • has Vocabulary (that will be on the test) • Applicable examples • BRING A DRY ERASE PEN TUESDAY OR LOSE POINTS!!!

  19. Agenda: 4/4 Continue Demand Lecture White Board Practice ; ) HW: Demand Determinant WS Shark Tank Tomorrow

  20. Determinants of Demand • Factors that determine how much will be purchased at any given price • Demand changes even if there is no change in price • The change will shift the entire demand line

  21. Consumer income Consumer attitude Price of a complimentary product Price of a substituteproduct Population Expectations Weather Technology The Determinants(“shifters”) Graph

  22. Change in Income • Normal goods- Demand increase as income increases (ie Coke or Pepsi) • Inferior goods- Demand decreases as income increases (ie Sam’s Club Soda vs. Coke or Pepsi)

  23. Changing Attitudes • Tastes and Preferences (i.e. Nike vs. Adidas) • Trends (i.e. Casual attire more acceptable in business now.) • Fads (Tattoos)

  24. Changing Price of Compliments • Complimentary goods- Products that are used together (ie peanut butter and jelly.) • Decrease in the price of one can increase the demand for the other

  25. Changing Price of Substitutes • Substitute goods- Products similar enough they can replace the other • Change in the price of other products causes change in demand for a good

  26. Expectations • People’s expectations about the future can change demand today. • You may wait for new technology to increase quality and/or reduce price. • You may rush out and buy supplies if the weather report says a terrible storm is about to arrive.

  27. population • A change in the number of consumers for a product • More consumers = increased demand • Less consumers = decreased demand Change in Qd vs Change in D

  28. Change in DemandRemember: The entire line shifts! Price (P) Increase Original Demand (D1) Decrease Quantity (Q)

  29. Did someone say “Whiteboards?” • Have a whiteboard and dry-erase marker ready to graph the following examples and list the determinant.

  30. Graph the effects of the popularity growth of “joggers”

  31. Demand Curve: Tastes and Preferences Price D2 D1 Quantity

  32. Graph the effects of a cut in paid work hours on your demand for eating out

  33. Income: demand decrease b/c your income has decreased Price D1 D2 Quantity

  34. The price of Pepsi goes up.Graph the effect on Coca-Cola

  35. Substitutable Goods: Demand will go up for Coke Price D2 D1 Quantity

  36. The price of grape jelly goes down.Graph the effect on peanut butter.

  37. complimentary Goods: Demand will go up for peanut butter Price D2 D1 Quantity

  38. The weather channel says there will flooding in your neighborhood tomorrow. Graph the change for demand of sand bags today.

  39. Expectations: demand for sandbags increases Price D2 D1 Quantity

  40. The weather channel says there will be rain & lightning storms at the Michigan / ohio st. football game. Graph the change in demand for t-shirt apparel at the stadium at kickoff.

  41. Change in Population-(less people @the game); “Expect” to be cold – not buy t-shirts;“Preference” to not be cold Price D1 D2 Quantity

  42. The weather channel says there will be rain & lightning storms at the Michigan / ohio st. football game. Graph the change in demand for Sweathsirt/jacket apparel at the stadium at kickoff.

  43. “Expect” to be cold-demand increase;jacket “population” increases;“Preference” to not be cold;“Compliments” the ticket to the game you bought – not cold ; ) Price D2 D1 Quantity

  44. Demand Summary Demand ACDC Homework – Determinant Packet

  45. Agenda- 4/7 • Current Events • Personal Finance Course • Shark Tank Business Plan Part I due shared with me on google docs by the end of the period (marmstrong@rjuhsd.us) • HW: Have a great Spring Break! =)

  46. Price Elasticity of Demand • Measurement of the relative responsiveness of the change in quantity demanded as a result of a change in price

  47. Elasticity Equation e = % Qd % P • Greater than 1 = Elastic • Less than 1 = Inelastic • Exactly 1 = Unit Elastic

  48. Elastic Demand • Elastic implies responsiveness • (read don’t write this one) Price is elastic if calculated value of price elasticity is greater than one • As the price of a good increases the quantity demanded decreases significantly

  49. Elastic Demand Schedule Quantity Purchased Weekly % Price % $1.00 - $1.05 5% $1.10 4% $1.15 4% 10 - 9 10% 7 22% 4 43%

  50. Elastic Demand Price D Quantity

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